When Orhan Pamuk received his Nobel prize for literature last December, he was praised for making Istanbul "an indispensable literary territory, equal to Dostoevsky's St Petersburg, Joyce's Dublin or Proust's Paris". Yet it was while visiting New York in the 1980s that Pamuk found his voice. Fuelled by a longing for his native city, he had a kind of epiphany and came to a belated "fascination with the wonders of Ottoman, Persian, Arab and Islamic culture".

His fiction recovers worlds largely ignored since Atatürk founded the secular republic in 1923 on the ruins of a defeated empire. But the recovery comes with a postmodern twist - Sufi poetry read through the prism of Jorge Luis Borges and Italo Calvino. Although Pamuk sees "the east-west divide" as, certainly for him, an illusion ("I can, without any guilt, wander between the two worlds, and in both I am at home"), it colours his fiction, and shapes his characters' anxieties about tradition and modernity, authenticity and imitation (copies and doubles recur), shame and the seeds of nationalist pride. His novels are "made from these dark materials".

For the past 200 years, he says, "an immense attempt has been made to occidentalise Turkey. I believe in that, but once your culture thinks of itself as weak, and tries to copy another, you sense that the centre is some place else. Being non-western is the feeling that you're at the periphery. History doesn't count where you are. I had that feeling." Yet in his Nobel lecture, "My Father's Suitcase", Pamuk described how that sense altered as he narrated his city. "Now Istanbul is the centre," he says. These ideas animate his first book since winning the Nobel, Other Colours (Faber), translated by Maureen Freely. Shaped as a sequence of autobiographical fragments, with musings on The Thousand and One Nights and Tristram Shandy, barbershops and Bosphorus ferries, its essays elegantly illuminate his life and times.

In August 2005, Pamuk was charged under Article 301 of the penal code with "public denigration of Turkish identity", for saying in a Swiss newspaper interview that "30,000 Kurds and a million Armenians were killed in these lands and nobody but me dares to talk about it." Though the case was dropped in January 2006, and Turkey's president, Abdullah Gül, has called for Article 301 to be amended, discussion of the massacres of 1915-17 still holds risks. Yet Pamuk is critical of moves abroad to enforce the recognition of what happened as a genocide, as in a French assembly vote last year and the US bill approved in October by a congressional committee, which prompted the recall of Turkey's ambassador to Washington.

"The issue is getting to be part of international politics, which I am upset about," he says. "For me, this is first an issue of freedom of speech in Turkey. We have to be able to talk about this, whatever one's opinion on it. The French resolution only made things harder for the democrats of Turkey. And I don't want to see Turkey's relations with the west destroyed because of the manipulation of this issue by various governmental bodies."

Following threats from an ultra-nationalist accused of organising the murder in January of the Turkish-Armenian journalist Hrant Dink ("Orhan Pamuk, be smart," he said outside court), Pamuk spent an extra semester in New York, but declines to call it exile. "There were death threats from semi-underground organisations," he says. "I'm stubborn - I could have stayed. But I'm a fiction writer. I didn't have peace of mind." He has bodyguards, but sees the worst as over. "People trashed intellectuals as betrayers of the country to get votes and prestige for the army - and it didn't work." In the July elections, "all these conspiracies did not raise the [pro-army, nationalist] secular vote, but made the ruling party (the moderate Islamist AKP, which supports membership of the EU) even stronger".

He is uneasy about his case being wielded against Turkish aspirations to join the EU. When speaking recently at London's South Bank, he was asked from the audience to explain the "paradox" that in the west "we give you prizes while in Turkey they put you on trial". Pamuk objected that not all his compatriots are hostile. His novels are bestsellers at home. He feels himself to be among "a generation of liberal ... open-minded Turks - there are so many of us".

Pamuk was born in Istanbul in 1952, into an "upper-middle-class westernised family", whose fortune had initially come from building railways. His father was a construction engineer and aspiring poet, given to absconding. Pamuk sees his elder brother Sevket (an economic historian) as his "Freudian father - giving me instruction on how to bow to authority. Now I'm grateful to my father for not being authoritarian." Up until the age of 22, Orhan dreamed of being a painter, and studied architecture, but he dropped out to go to journalism school. At Istanbul University in the 1970s, he had leftwing sympathies and, after the 1980 coup d'état that presaged military rule by the Atatürk-inspired nationalists, agonised that "so many prisoners were being tortured". But his impulse was to "write beautiful fiction, not propaganda".

When in Istanbul, he walks to his office, overlooking the stretch of water between Europe and Asia, from Pamuk Apartments, the modern block his family built in the early 1950s. His first reaction to the Nobel "was to say it would not change my life". But "it did - I'm more social. And I'm working even harder." One benefit of winning the prize, he says, is that "all the family made up": the publication of Pamuk's memoir, Istanbul (2003), temporarily "destroyed my relationship with my mother", Shekure, who opposed his becoming a writer, and also led to a breakdown in relations with Sevket, whose beatings he had described. "Now we're friendly," he says with a boyish grin. And though he has lived alone since his marriage to the historian Aylin Turegen ended in 2001, he says his ex-wife and teenage daughter Ruya "remain my best friends".

His Istanbul, a "city of ruins and end-of-empire melancholy", is mostly taken from the 1950s and 60s, he says, "the troubled town that turned inward, that learned from history not to aspire to much. It's the same for my characters; they feel second-rate, secondary to the west." His early, untranslated novels, Cevdet Bey and His Sons (1982) and The Quiet House (1983), were family sagas, modelled on Dostoevsky, Tolstoy and Thomas Mann. But he turned to 17th-century Constantinople in The White Castle (1985), a tale of confused identities between a Venetian Christian slave and the Ottoman master who looked like him. Wherever "a non-western culture wants to be occidentalised - or 'globalised' - the question of authenticity arises", Pamuk says. "It's a social inevitability, but you blame yourself; you live it personally." To be a writer "is to acknowledge the secret wounds we carry inside us", sharing our secret shame to "bring about our liberation".

Having attended an American school in Istanbul, he read the Sufi classics "in a secular, metaphysical way. That paved the way to relocating them in contemporary Istanbul's labyrinthine streets." In The Black Book (1990), a "Dadaist collage" of Proustian nostalgia, Islamic allegory and detective fiction, a lawyer searches for his missing wife in the months before the 1980 coup. The murder mystery My Name is Red (1998) takes place in 16th-century Constantinople, as the sultan's court miniaturists are supplanted by post-Renaissance notions of art. Faced with major cultural change, he says, there is a "trauma of being forgotten". He likens it to the arrival of a Xerox machine in a village of prestigious copyists. "The consequences are my subject: the pain, fury, physical attacks on the machine."

A self-avowed "optimistic westerniser who stubbornly resists disillusionment", Pamuk is troubled by what he sees as the costs of westernisation. While tradition is resilient, he says, democracy may be less so. In his most overtly political novel, Snow (2002), set in the town of Kars on Turkey's north-east border with Georgia and Armenia in the 1990s, as civil war rages with secessionist Kurds, militant secularists stage a coup against rising political Islamists. Pamuk set himself the task of identifying with the "Islamists - the devil in Turkey's westernised media. It's taboo, but identifying with someone is not agreeing with them. At the heart of fiction lies a unique human talent to identify with the pain, pleasure, joy, boredom of others. Once you base your art on that, you're political." As he writes in an essay: "The history of the novel is a history of human liberation. By putting ourselves in another's shoes, by using our imagination to shed our identities, we are able to set ourselves free.

"Both the secularists and the political Islamists were upset, but I survive," he shrugs. The novel, he says drily, made him "headscarf professor" for a while, though he insists there is no simple solution. "It's been a problem for 50 years: people wearing conservative dress can't participate in official life, so that created fertile ground for political Islamists and military-backed so-called secularists to fight each other - which they love to do."

For all the conflicts over Turkish identity, Pamuk is convinced that having a "single spirit" would be worse. "The economy is booming and [that's] hard to squeeze into one line of thought. Turkey should develop tolerance - and I think that's what's going to happen." Yet he sees the secular establishment as having "fuelled anti-westernism with nationalist propaganda, forgetting that Atatürk was an arch-occidentalist - it's an obvious contradiction." The Iraq war, which he opposed, has also "made life for liberal, secular democrats in Islamic countries so much tougher".

Pamuk is finishing his eighth novel, Museum of Innocence. Set in the 1970s, it "chronicles Istanbul's bourgeois high society; the problems of living a westernised life, and how much they're embedded in a tradition that is denied - especially in terms of sexual morality". Modern nations, he has said, do their deepest thinking about themselves "through novels". He has readers across the world, but his greatest satisfaction is in being a "devoted writer, surviving and making my books read in my own country. That's the hardest thing."